The US dollar has dropped across the board against most currencies, but the Swiss franc is in a different world at the moment.
USD/CHF
The US dollar has dropped against the Swiss franc as interest rates are dropping due to the idea that peace could be breaking out in the Middle East. That being said, this is a market that still sees a bit of support near the 0.78 level and let’s be honest here, these tweets and conversations of how the Americans and the Iranians are starting to talk to each other in a more positive tone, that’s a story that we’ve heard more than once and I think the market is starting to show later in the day that maybe we got a little ahead of ourselves and quite frankly we did.
vAcross the board, in the gold market, the forex markets, the stock markets, everything else. This is a particularly interesting pair because if it goes back to its original dynamics most of the last 20 years, what will happen when it’s more risk appetite driven trading out there, eventually you’ll see the US dollar rally against the Swiss franc as it is considered to be the ultimate safe haven.
Interest Rate Differentials and Market Dynamics
Part of what we’ve seen during the trading on Wednesday has been the fact that US rates were finally dropping. But you’ll notice at the bottom of the chart there’s also the Swiss rates that are dropping as well. They are moving in lockstep. So, what this means is the interest rate differential remains. And that’s why I’m looking to buy any bounce here. If we can break above the 0.78 level, I’m willing to have another go at it.
This is a pair that doesn’t move very quickly and quite frankly most of my strategy around trading this pair is collecting the swap and maybe trimming my position once it goes my way a little bit. I don’t put massive trades on in this pair, it’s quite frankly too slow moving most of the time.
But what I would point out is that we’ve seen the 0.78 level offer a bit of support multiple times as it was previous resistance on the ascending triangle in February. I think this has a real shot at perhaps rallying from here. I will say this; all it’s going to take is 1 bad tweet or comment out of the Middle East to really bring rates higher again. They’ve been very jumpy for a long time. If the Iranians and the Americans go back to peace and stop throwing missiles at each other, then there’s a real world in which the US dollar rallies anyway. So in short, over the longer term, this is still going to be a bullish market.